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Our regular AGA newsletters
will return on July 25, 2005. Highlights National Community Service
Raffle Breaks Record More than $16,928 was raised during the PDC, half
of which will go to the National Community Service Fund and the other
half will be donated to the Fisher House, which supports America's military
in their time of need by providing "a home away from home" that enables
family members to be close to a loved one at the most stressful time --
during hospitalization for an illness, disease or injury. AGA thanks the
chapters and vendors for providing prizes and a special thanks to Renee
Gilman, CGFM, and Linda Chilcoat, who coordinated the onsite effort. A
more detailed list of contributors and volunteers will run in a future
issue of TOPICS.
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TOPICS
Special Edition! Live from AGA's 54th Annual Professional Development Conference & Exposition, Orlando, FL AGA's PDC Ends on a High Note The final day of AGA's 54th Annual PDC began with an address from Ian Ball, chief executive of the International Federation of Accountants (IFAC), who discussed international developments in government accounting. IFAC, which was founded in 1977 and ventured into the public sector in 1987, represents the accounting profession globally with 163 member bodies. It sets standards for the profession, including international standards for auditing (which are now being adopted by the European Union); sets the international code of ethics for accountants; sets the international standards of education for accountants; and sets international standards for financial reporting. Ball discussed the recent spate of corporate scandals, which have spurred a dramatic raft of regulatory action, including the Sarbanes-Oxley Act of 2002. "Let me assure you, its ramifications have echoed around the world," Ball said of the act, which has provided the impetus for similar legislation around the world and has resulted in improvements. Ball discussed IFAC's efforts in this area, which has included the development of a series of reforms. These reforms led to the establishment of the Public Interest Oversight Board to oversee IFAC's standard-setting activities with members chosen by a nominating committee that is completely divorced from IFAC. Another sign of progress, Ball said, is the work the major accounting firms have done to enhance their independence, including shedding their consulting arms. "They have made significant progress," Ball said of the firms, with the result being greater transparency and independence. Lots of attention has been paid to the cost of all the reforms, Ball said, noting that early estimates placed the cost of compliance at $300,000 to $500,000 for most companies, a number that has proven to be low as the real costs soar to $3 million to $5 million a year for many companies. The overall cost of compliance in the U.S. is expected to be between $2 billion and $5 billion. While it's clear that the cost of compliance is going to be much greater than anticipated, "Good financial reporting is worth the cost," he said. The citizenry has a right to have confidence in government financial reporting for three reasons. The first is performance. If governments don't operate efficiently, it's a huge drain in the economy. The second is accountability-governments are spending our money. The third is democracy and a properly functioning democracy required citizens to have confidence in politicians and public servants. In comparison to many governments, Ball said, Enron would be a model of transparency. When the audience laughed at his comment, he added, "The problem is, that's not funny." Ball acknowledged the role AGA is playing in the development of legislation and standards. He pointed to the recent AGA research report, "Audit Federal Financial Controls-Sooner Rather Than Later?" as an example of the Association's leadership. A
Whistleblower's Story "Doing the right thing doesn't mean there's no cost," she said, but added that the right ethical decision should be made despite the consequences. Cooper, WorldCom's former vice president of internal audit, was an AGA keynote speaker Wednesday morning. She was one of Time magazine's 2002 Persons of the Year, one of only eight women to be named in the 77-year history of the magazine's award. Cooper said most whistleblowers crack under the enormous strain, plunge into depression or even alcoholism; some lose their families or their homes. While she said her family, friends and faith sustained her while she was at the center of the storm, she and her co-workers suffered intense pressure from the media, investigators and members of the small community of Clinton, MS, where WorldCom was headquartered. About 17,000 WorldCom employees were laid off as the company filed for bankruptcy in the fraud that eventually totaled $11 billion. The company has since emerged as MCI, with its headquarters moved to Virginia. Five top executives were indicted, including former Chief Financial Officer Scott Sullivan and former Chief Executive Bernard Ebbers, who was sentenced Wednesday to 25 years in prison for his part in the fraud. Cooper stressed that uncovering the fraud was not the cause of the company's demise: It was the implosion of the telecomm industry. The fraud, which was conducted at the highest levels, merely masked the true picture of the company's financial health. Part of the reason for WorldCom's downfall reached back to the company's acquisition of 70 companies over two decades. Auditors had to deal with 60 different billing systems, the clash of cultures between MCI and WorldCom, and the rapid, unsustainable growth of the company. In WorldCom's case, Internet growth fell short, start-ups went bankrupt and WorldCom found itself with enormous network overcapacity. Ebbers made investments in yacht building companies, timberland and more using his stock options as collateral. He got into trouble when the stock's prices started dropping, he received a total of $400 million in personal loans from the company's board of directors, who banked on an upswing in the company's stock price. The upswing never materialized. Moral
Compass "In hindsight, I think we were operating with one hand tied behind our backs," she said. The fraud began to be uncovered by tracking 50 unusual journal entries that were spread among different subsidiaries. Although financial frauds that are conducted with executive involvement are the most difficult to detect, Cooper's team was able to figure it out through access to the accounting system, a team of forensic auditors, a highly qualified team with 90 percent of them having earned professional certifications. She also said she followed her instincts, and confronted management and external auditors when she faced resistance. The fraud was uncovered through a regular capital expenditures audit. Working at night and behind closed doors because of all the barriers and hostility they encountered, the team eventually found $700 million in fraudulent entries. By falsely categorizing billion of dollars of operating expenses as capital expenditures, the company publicly reported a $2.4 billion profit in 2001. Cooper went to Controller David Myers' office, and he admitted that there was no support for the entries and that they shouldn't have been made. Cooper called for a meeting with the audit committee, and that meeting in June of 2002 led to the firing of Sullivan and an avalanche of other events that rocked the world markets. Cooper did not leave MCI until one year ago, and quickly hired a Coke whistleblower to join her consulting business. Now that the storm of scandal is over, Cooper urged the audience to understand that "small decisions matter" and that doing nothing is also a decision. Trust your instincts, she said, and follow your moral compass. Do not allow yourself to be intimidated. Discuss your decisions with others. Ask yourself whether you would be comfortable if you actions were reported on the front page of the Wall Street Journal. She concluded, "Courage is acting in the face of fear." By: Christina M. Camara and Marie S. Force |
© Association of Government Accountants 2005 Disclaimer: AGA serves government accountability professionals by providing quality education, fostering professional development and certification, and supporting standards and research to advance government accountability. If you would like to opt off of future AGA mailings, please e-mail agawebmaster@agacgfm.org. Thank you. |
